A scheme of gratuity and a scheme of pensions have much in common. Gratuity is a lump sum payment while pension is a periodic payment of a stated sum. They are both “efficiency devices” and are considered necessary for an “orderly and humane elimination” from industry of superannuated or disabled employees who but for such retiring benefits would continue in employment even though they function inefficiently. The voluntary retirement of an inefficient or old or worn out employee on the assurance that he is to get a retiral benefit’ leads to the avoidance of industrial disputes, promotes contentment among those who look for promotions, draws better kind of employees and improves the tone and morale of the industry. It is beneficial all round. It compensates the employee who as he grows old knows that some compensation for the gradual destruction of his wage earning capacity is being built up. By inducing voluntary retirement of old and worn out workmen it confers on the employer a benefit akin to the replacing of old and worn out machinery. An indirect saving also results when workmen at the top of the wage scales retire and their place is taken by more energetic workmen at lower scales.
In this connection we cannot compare compensation for retrenchment and provident fund on the one hand with gratuity or pension on the other. Compensation for retrenchment is solatium for premature termination of employment. Contribution to the provident fund is designed to induce thrift so that the employee may lay by from his present earnings a portion for a rainy day or for his old age. As the workman cannot be expected to spare very much, regard being had to the gap between what he earns and what he must spend, the employer is expected to make a contribution. Gratuity is at retiral benefit of a very different kind, because it is earned by giving service. The existence of any one of the three schemes, therefore, does not obviously overlap any of the other two. They can all exist together, provided the financial position justifies such a course.
